Currency technicals

This piece talks about what I was seeing technically, in charts, in currencies.

At the end, I make my future predictions, for the next 2-3 years.

My MO

My trading MO, so far, is, I try to understand what charts say about how the market values things first, then secondarily, I try to understand how fundamentals support what I think I see.

What the hell?

Non trader friends often tell me they don’t understand what the hell I’m talking about. It’s frustrating, since almost all my friends are non-traders. And I am attempting to talk in very clear language, about things I think matter to all of us, traders or not.

And I only use a very few things in trading. I use pretty much no “indicators.” (No moving averages, RSI, Mac D, etc etc.)

Fibs

One of the main things I use is Fibonacci levels. And of those, there are only two that I usually use.

The most obvious one is 50%. That’s simply the middle of any range. And then, on a very large time frame, the 61.8% level becomes VERY strong.

So I talk about that level in these 20 year time frame charts. Anything over a few months, and the 61.8% level is the one to watch. On shorter time frames, the 50% level is stronger.

Mainly I feel like people think they don’t understand me, because they think I must be saying something more complicated than what I’m actually saying.

Anything is boring unless one is interested, unless we find a practical connection which engages the topic to our real lives.

An EEG readout is boring. But what it talks about is very important, and vitally interesting.

We are trying to use market charts like an EEG reading, to tell us about the brain activity of markets, which vitally affects us, and everyone.

Here is the Dollar range, which started in 2014

It popped out on Trump, then fell back in.

The way price reacts around ranges is the main thing I’ve learned about trading. Most of my ideas revolve around this, rather than obscure indicators.

When price moves out of a range, if it sticks to the edge, and makes a little hat like pattern (on the top…on the bottom, it would be a bowl like pattern, stuck to the underside of the range), it’s likely to plunge back in to the range, and retrace it.

If price breaks out of a range, and holds, beyond its edge, its impulsive. The market is saying the old range of value is no longer appropriate. And it’s trying to establish a new range. Like what happened in the stock indices on the Trump move.

The dollar looked like it was preparing to act the same, like this SP500 chart.

The fact that the chart looked like I describe technically, makes me think the market was reading the currency fundamentals and technicals the same way as me. The fundamentals I described in my $€? entry.

But we were wrong!

Technical reasoning.

There were other technical reasons for this thinking (that the dollar had further up to go, and the euro further down, before finding a turning point.

On a 20 year time frame, the Trump pop broke the very strong 61.8% level. This broke the 20 year old down move in the dollar, in my mind.

Looked at like this, very broadly, with monthly candles, it looks like that that 61.8% level held. And clearly, it did, messily.

But you see how that one monthly candle closed outside of the 61.8% level? And then the next month double topped there, before turning down? To me, that broke the level, and was meaningful on a very large time frame.

That was a “poor high.” Meaning, it doesn’t look like a final top. (Although it does look like the top I compared to the Cabo Rock formation.)

If you zoom in on that area, you can see how it got above that 61.8% level, and held there in space, for a very long minute. (Getting your time frames wrong is one of the best ways for technical traders to screw themselves up.)

This would have been a very painful short, for months. I did in fact short it, but that action confused me. Of course, this is a 20 year time frame. And when you zoom out enough, it did work. At this point, in retrospect, it was obviously little pain for a big reward.

Anyway, you can see how, after holding above for quite a while (grey circle), it plunged back in, through the important level, held for even longer than it stayed above (fuchsia circle). Tried to move up one last time (yellow circle). And then failed miserably.

And, remember, our 2014 range top was below the 61.8 level. And taken as a whole, over months, in a big picture, the action above the range DID stick to the edge, form the hat type pattern, and plunge back in.

On this scale, it does make a nice top. Nearly a picture perfect head and shoulders. Touch of the 61.8 level forms the first shoulder. Then the breakout/fail forms the head. Try one more time to get out, second shoulder. And that’s all she wrote.

I remember reading William O’Neil’s How to Trade Stocks. He said the “head and shoulders” pattern is rare. But on many time frames, I see it very frequently.

In retrospect, the good short was on the second shoulder, the second touch of the 61.8 level, which was the first two weeks of March 2017.

And even this was painful, since it was slightly higher than the first shoulder. Lots of large time frame fake outs in this action. Goldman Sachs scale traders fucking with each other.

The Euro

In the Euro Dollar pair, we had similar actions.

Here is the 2014 Euro range

Look how it broke out of the top earlier, and plunged back in. That’s a good high. “Secure high.” Look how it broke out of the bottom….POOR low.

Technically, it looks like it wants to go lower.

Is there some other reason to think it might go lower, other than the psychological parity target? A technical reason?

Why yes!

The whole 2014 range is a very sloppy break well below the 20 year 61.8% level.

But is it going lower? Obviously, no. Not yet.

As it went back up, look how it reacted around the 50% and the 61.8% levels. It considered the 50%, then blew through both!

Also, look at that gap, the white box. There is nothing like that in the whole 3 year range. That is highly likely to get filled later.

Future guesses

So after all, the whole point of technical chart reading is to guess the future, based on the historical values.

Ironically, my future guesses about the dollar action, from blogs quite a while back, were pretty accurate. But in real life, I got confused by the pivots.

In order to actually profit through trading or investing, we have to be able to make predictions, take positions based on our predictions, then read the action as it happens in real time, to decide if our prediction is acting correctly, and if we should hold, or get stopped out.

That last part is really the rub. It’s where psychology and experience become SO important for investors and traders.

Euro guess

This predicts a fall roughly from 2018-2020, with levels.

Sometime around then, we probably need to assess if the Euro zone will recover, of be scraped and rebuilt.

Here are some levels I will use to look for that turn around a few months from now, somewhere in the $1.17-$1.20 area.

It would be nice to see a spike from $1.17 to $1.21 and fail, back through $1.17 all in one day, or one week. That would be a good short.